Oct. 17 (Bloomberg) -- Canada's currency fell for a third week, the longest losing streak since August, as the threat of a U.S. economic slowdown reduced commodity prices.

The Canadian currency weakened 0.8 percent this week, as crude oil sank below $70 a barrel and the country's main stock index touched the lowest in four years. The U.S. is Canada's largest trading partner. Oil accounted for 10 percent of Canada's export revenue in 2007.

``We've seen steady selling of the Canadian dollar,'' said Samarjit Shankar, director of global strategy for the foreign- exchange group in Boston at Bank of New York Mellon, the world's largest custodial bank. ``The flow of economic data is pretty negative in the U.S. We have the usual correlation in energy prices and the Canadian dollar. The U.S. slowdown is expected to have an impact on Canada's exports.''

The Canadian dollar depreciated as much as 1.3 percent today to C$1.1932 per U.S. dollar, from C$1.1783 yesterday. It last traded at C$1.1809 at 2:04 p.m. in Toronto. The currency reached C$1.1732 on Oct. 10. It has declined 10 percent this month. One Canadian dollar buys 84.70 U.S. cents.

Crude oil for November delivery yesterday touched $68.57. It has lost more than half its value since reaching a record $147.27 on July 11.

The Canadian dollar has depreciated 15 percent since then.

Crude accounts for 21 percent of the weighting in the Bank of Canada Commodity Price Index, the largest single component. The Index fell 6.6 percent this week to the lowest in more than a year.

`Energy-Heavy'

``The decline in oil prices is hurting the prospects of energy-heavy Alberta, a key factor for Canada's future growth prospects,'' CIBC World Markets strategists Shane Enright in Toronto and Adam Fazio in New York wrote in a note to clients today. ``The global financial crisis has taken its toll on the Canadian economy.''

A close this week or this month above the C$1.1885 ''pivotal price point'' would imply that the Canadian dollar is headed towards resistance at C$1.2735, Enright and Fazio wrote.

``We're advising holding on to the U.S. dollar,'' Shankar said. ``We're expecting the greenback to build on its gains. Currencies like the Canadian dollar are going to find it very difficult to get support.''

The Standard & Poor's/TSX Composite Index yesterday reached the lowest since October 2004.

`U.S. Downturn'

``Everything we got this week suggests the U.S. downturn will be accelerating in the second half of this year,'' said Stefane Marion, assistant chief economist at National Bank Financial in Montreal. ``That will undermine demand for commodities in 2009. What dominates the Canadian dollar is what happens to commodity prices.''

Data released today showed housing starts and building permits declined in the U.S. during September. Canadian consumer confidence fell to its lowest level since 1982 this month, according to a survey by the Conference Board of Canada.

``It is only a matter of time, and not much time, before the worsening situation in the U.S. economy spills over into Canada,'' Don Drummond, chief economist at Toronto-Dominion Bank, the country's second-biggest lender, wrote in a note dated yesterday. Drummond predicts the Bank of Canada will cut borrowing costs a half-percentage point to 2 percent when it meets on Oct. 21. The median forecast of 19 economists surveyed by Bloomberg News is for an identical reduction.

Central Bank

The central bank lowered its key rate to 2.5 percent from 3 percent on Oct. 8 as part of a coordinated effort to ease the economic effects of the financial crisis.

The yield on the two-year government bond rose 9 basis points, or 0.09 percentage point, to 2.30 percent this week, the first gain in a month. The price of the 2.75 percent security due in December 2010 fell 21 cents during the period to C$100.91.

The 10-year note's yield decreased 4 basis points to 3.76 percent during the week. The price of the 4.25 percent security maturing in June 2018 climbed 26 cents to C$103.93.

The 10-year bond yielded 146 basis points more than the two- year security, down from 158 basis points a week ago, when the so-called yield curve hit the steepest since September 2004.

The two-year bond's yield will rise to 2.53 percent by the end of this year, while the 10-year bond's yield will reach 3.74 percent, according to the median forecasts of economists surveyed by Bloomberg News.

The yield advantage of the 10-year U.S. Treasury note compared with similar-maturity Canadian government bonds was 21 basis points, down from 39 basis points on June 25, the most this year. The Canadian 10-year bond yielded 36 basis points more than its U.S. counterpart on Jan. 22.

Canadian government bonds have returned 4.4 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries have returned 4.6 percent this year.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

Last Updated: October 17, 2008 14:06 EDT